Limited liabilities partnerships membership

All business letters and order forms must show the following: limited liability; body corporate; taxed as a partnership; organisational flexibility of a partnership; partnership agreement (if any) confidential to members; accounts preparation and filing requirements broadly as for a company; ability to create floating charges. The ability to create a corporate body with limited liability which at the same time will be taxed (and largely organised) as if it were a partnership is'a strong combination for the right circumstances.

Those setting up a new business may wish to consider a limited liability partnership as an alternative. Many existing partnerships may also wish to consider whether the LLP will be suitable for them. There will be stamp duty relief on the instrument transferring property from an existing partnership to a newly incorporated LLP if relevant conditions are met. Interestingly, there is no minimum amount for contribution by members in a winding up of an LLP. However, there are detailed provisions designed to prevent members siphoning off funds in the event of insolvency. Parts of the Insolvency Act 1986 will apply.

On the incorporation of a limited liability partnership its members are the persons who subscribed their names to the incorporation document (other than any who have died or been dissolved). Any other person may become a member of a Limited Liability Partnership by and in accordance with an LLP partnership agreement with the existing members. A person may cease to be a member of a limited liability partnership (as well as by death or LLP dissolution) in accordance with an agreement with the other members or, in the absence of agreement with the other members as to cessation of membership, by giving reasonable notice to the other members.

A member of a limited liability partnership shall not be regarded for any purpose as employed by the limited liability partnership unless, if he and the other members were partners in a partnership, he would be regarded for that purpose as employed by the partnership.

LLP members as agents

Every member of an LLP is the agent of the limited liability partnership. But a limited liability partnership is not bound by anything done by a member in dealing with a person if the member in fact has no authority to act for the limited liability partnership by doing that thing, and the person knows that he has no authority or does not know or believe him to be a member of the UK limited liability partnership.

Where a person has ceased to be a member of a limited liability partnership, the former member is to be regarded (in relation to any person dealing with the limited liability partnership) as still being a member of the limited liability partnership unless the person has notice that the former member has ceased to be a member of the LLP, or notice that the former member has ceased to be a member of the limited liability partnership has been delivered to the registrar.
Where a member of a limited liability partnership is liable to any person (other than another member of the limited liability partnership ) as a result of a wrongful act or omission of his in the course of the business of the limited liability partnership or with its authority, the limited liability partnership is liable to the same extent as the member.

Designated members

If the incorporation document specifies who are to be designated members any member may become a designated member by and in accordance with an LLP agreement with the other members, and a member may cease to be a designated member in accordance with an agreement with the other members. But if there would otherwise be no designated members, or only one, every member is a designated member.

If the incorporation document states that every person who from time to time is a member of the limited liability partnership is a designated member, every member is a designated member. A limited liability partnership may at any time deliver to the registrar: notice that specified members are to be designated members, or notice that every person who from time to time is a member of the limited liability partnership is a designated member. A notice shall be in a form approved by the registrar, and shall be signed by a designated member of the UK limited liability partnership or authenticated in a manner approved by the registrar. A person ceases to be a designated member if he ceases to be a member.

Choosing an limited liability Partnership Status

Choosing limited liability partnerships (LLPs) can provide an ideal structure for numerous businesses - not simply professional practices as is a common misconception. The only activities that cannot adopt LLP status are those that are unlawful, not intended to be profitable and which do not constitute the carrying on of a trade, profession or occupation. Therefore, if you are contemplating setting up in business or reconsidering the structure of an existing business, an LLP could be an option worth investigating. For professional service partnerships, conversion to LLPs may offer an attractive prospect at the moment as the number of negligence claims against professional firms are increasing, and as a result professional indemnity (PI) cover is becoming more expensive.

Unlike a standard partnership, an LLP is a corporate body with the ability to contract in its own right. The partners - known as members - are not put at risk by the negligent acts of their fellow members and their liability is limited to the amount they agree to contribute upon a winding up. For most tax purposes, however, the corporate status is ignored and members can essentially enjoy the same income tax, national insurance and capital gains tax treatment as partners in a general partnership.

Such advantages do not come without effort - there are starting-up and filing requirements that need to be adhered to. However, for many businesses LLPs offer an excellent halfway house between an unincorporated business and a company. LLPs are, technically, corporate bodies. This means they offer several commercial advantages over ordinary partnerships. Their corporate status gives them added credibility among customers and suppliers and they can find it easier to borrow because they can give the bank a floating charge over their assets - something ordinary partnerships cannot do.

When limited liability is factored in, but with the flexibility to operate day to day like an ordinary partnership (no Annual General Meetings and the related paraphernalia associated with limited companies), LLPs are suddenly a pretty serious proposition for the smaller business. Another consideration is that LLPs, like limited companies, have to make their annual accounts public by filing them at Companies House. For some businesses, this is actually an advantage - although for others it's a "show-stopper".

LLPs are also being used increasingly by companies undertaking joint ventures, as they offer the benefits of limited liability without the disadvantages of having an subsidiary company.

An LLP is a flexible vehicle that should at least be considered for business start-up; every joint venture; every professional practice; every business with chargeable assets and for collective investment arrangements.